Live revision! Join us for our free exam revision livestreams Watch now

Topics

Cross-Subsidy

A cross-subsidy is a situation in which one group of customers or clients is charged a higher price for a product or service in order to subsidize a lower price for another group. This can occur in various industries and sectors, including transportation, energy, and telecommunications.

For example, in the energy sector, a utility company may charge higher rates to commercial and industrial customers in order to subsidize lower rates for residential customers. This may be done to ensure that basic energy services are affordable for all members of the community, regardless of their income level or ability to pay.

Cross-subsidies can also occur within a single product or service, such as when a company charges higher prices for premium features or customization in order to subsidize the cost of providing a basic service to all customers. The use of cross-subsidies can be controversial, as it may be seen as a form of price discrimination that benefits some groups at the expense of others.

See also: Price discrimination

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.